Manufacturers in KP affected: Show-cause notices being issued for tax periods prior to 25th Amendment

LAHORE: The FBR field formations, particularly those in Khyber Pakhtunkhwa (KP), are pursuing suppliers of goods to tribal areas by creating tax demands for tax periods prior to the passage of 25th Amendment to the Constitution, said sources.

They said the field formations in KP are creating demands to charge additional tax from tobacco and soft drink manufacturers against their sales to unregistered buyers in erstwhile Tribal Areas for the tax period prior to the amendment, the sources added.

The 25th Amendment was incorporated into the Constitution in 2018, by which the erstwhile Tribal Areas cease to exist and stood absorbed into the provinces of Khyber Pakhtunkhwa and Balochistan.

According to the sources, show-cause notices are being issued to tobacco and soft drink manufacturers for tax periods not covered under the amendment to raise demands for charging additional sales tax against their sales to unregistered recipients in the then Tribal Areas.

Taxpayers, on the other hand, are of the view that there was no liability for the payment of additional tax in respect of a situation where the person making the taxable supplies were located in Pakistan and the recipient of those supplies was located in Tribal Areas during the contentious tax periods.

They said the federal laws were not applicable in relation to the Tribal Areas before the amendment, which otherwise was applied in the whole of Pakistan. Similarly, they said, there was no such direction in relation to the Sales Tax Act at the relevant time.

The department, on the other hand, was of the view that since suppliers of goods were in Pakistan therefore the tax is deductible despite the fact that recipients were located in the Tribal Areas. The supplies were taxable supplies within the meaning of the Sales Tax Act, 1990, and since the recipients were not registered therefore additional tax has been attracted.

The sources said the department is relying on the fact that since the suppliers were in Pakistan, therefore, their recipients are liable to pay additional tax and the legal liability to pay the tax falls on the person making the taxable supplies. However, the department could not establish whether or not the supplies were made in Pakistan during the contentious tax period.

They said the show-cause notices issued by the department hold no ground in the courts of law up to the Supreme Court but the field formations are pursuing their fake demands against the taxpayers. But they fail to establish such fake demands under the garb of the 25th Amendment to penalize the manufacturers for their supplies to Tribal Areas prior to the passage of the amendment.

It may be noted that the creation of fake demands by the department has been a constant headache for taxpayers all over Pakistan. It amounts to a colossal loss of funds as well as a waste of precious time for taxpayers.

Copyright Business Recorder, 2022